Mayoral and council candidates who say they’ll shut down the streetcar ignore the realities facing the project

Roughly half a mile of streetcar track
will be laid out before Cincinnati’s next mayor takes office in
December, and $117 million is already spent or contractually obligated
to the transit project. But one of the two leading mayoral candidates
still insists he’ll be able to shut it all down if he wins the election
in November.

Over the past year, canceling the $133
million streetcar project has become a cornerstone of former Councilman
John Cranley’s mayoral campaign. Throughout multiple debates and while
stumping on the campaign trail, Cranley has flexed his opposition as the
one way he can differentiate himself from his opponent, fellow Democrat
and Vice Mayor Roxanne Qualls.

But with construction underway, federal
grants tied to the project and multimillion-dollar contracts signed,
more questions remain about what it would cost to cancel the project
than what it would cost to finish it.

If Cincinnati’s obligations — including
contracts with the construction companies currently working on the
project and the design firm that on Oct. 7 released renderings of
Cincinnati’s cars — are fully called on, the city could have to pay
millions of dollars more to cancel the project than to complete it.

The move would also require support from
City Council. A majority of the current City Council supports the
streetcar project, but several council candidates oppose it, including
P.G. Sittenfeld, Pam Thomas, Chris Smitherman, Charlie Winburn and Amy
Murray.

The high costs involved in cancellation
raise questions about whether opponents of the streetcar, who claim to
be concerned with the project’s costs, would go so far as to take on
even more expenses just to terminate it.

Calling on contracts

Because Cincinnati already signed
contracts for the streetcar project, the city could call it quits and
still be on the hook for up to $95 million that’s encumbered to
developers and suppliers involved in the project, on top of the $22
million the city has already spent, according to the city’s monthly
streetcar progress report.

Meanwhile, completing development and
construction of the 3.6-mile streetcar line would cost the city $88
million. The rest will be financed by $45 million in federal grants
specifically allocated to the streetcar project — nearly $41 million of
which would be taken back by the federal government if the project were
canceled.

In other words, after accounting for lost
federal grant money, the city could be on the hook for an extra $29
million if it cancels the project over completing it.

Cities rarely cancel projects of this
magnitude at such a late stage, so it’s unclear exactly how much
stopping it would cost. But it would involve canceling a $71.4 million
construction contract with Messer Construction, Prus Construction and
Delta Railroad and a nearly $21 million contract to build the cars with
CAF USA. Trying to pull back from the contracts would likely spur
litigation from the companies that want to complete and get paid for the
work they were hired to do.

For the Messer contract, the city would
have to at least pay for all work leading up to cancellation and any
construction necessary to close the project. For the CAF USA contract,
the city is obligated to at least pay for all work done up to the point
of cancellation — most of which is costly design work — and a little
more to make CAF’s work profitable.

Should the city lose these lawsuits, the
payments — for work that never was completed — would have to come out of
the operating budget, as opposed to the capital budget that is
currently financing the project. The operating budget, which was more
than $350 million in 2013, pays for cops, firefighters, human services
and other year-to-year city operations, while the capital budget uses
debt obligations and other capital funds to finance big development
projects. Since the contractual payments wouldn’t be going toward a
capital project following cancellation, they would have to come out of
the operating budget.

Cincinnati’s operating budget has
remained structurally imbalanced since 2001, which means the city
currently takes in less revenue than it pays out in operating expenses.
Adding tens of millions more to the operating budget could force the
city to dramatically cut services or raise taxes.

Cranley says one possibility is to get
out of the contracts. “We’d see what the options are to cancel the
contract,” he says. “We always have the option of renegotiating the
contracts to do other infrastructure work in the city.”

But that means the city would need to
work out a new deal with Messer, CAF USA and other developers, which
might have little interest in taking on more work with a city that is,
in this scenario, trying to cancel the first project they were hired to
do.

Alternate infrastructure projects also
wouldn’t be eligible for federal grants allocated to the streetcar
project, so the entire cost of the contracts would theoretically need to
be put to use and actually amount to a higher cost to the city after
the federal money goes away.

For streetcar supporters like Qualls, the price tag of cancellation is just another reason the project must move forward.

“It would be financially reckless to
cancel it at this point,” Qualls says.

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“We don’t know how much we would
actually end up paying for, but we would be paying for something that we
don’t have.”

Breaking the trust

Even if Cincinnati could get the cleanest
possible break from the contracts, concerns remain about how the city’s
partners — CAF, Messer, the federal government and other businesses —
would react to the sudden cancellation of one of the city’s costliest
projects in decades.

“Once (the city) makes a decision, people
need to be able to take it to the bank — literally,” Qualls says.
“Reneging on something like this creates huge uncertainty, not just for
this project but other projects.”

Qualls says the city would also spend
more political capital canceling the project than completing it. In 2008
and 2012, part of President Barack Obama’s platform touted light rail
projects around the country. That, Qualls argues, shows Cincinnati is
actually taking on one of the Obama administration’s top goals, and
terminating the deal would actively go against federal priorities.

Qualls’ perspective helps explain why the
Obama administration has been so willing to hand over money for the
streetcar project, even as the local politics surrounding the issue have
become more and more heated. The federal government in June agreed to
give the city another $5 million for the streetcar as long as City
Council managed to fill a $17.4-million budget gap for the project,
which council agreed to do later in the month.

Given the federal government’s consistent
support for the project, Qualls says pulling back now would betray the
federal government’s confidence and trust in Cincinnati. At the very
least, the U.S. Department of Transportation (DOT) would take its money
back.

U.S. Secretary of Transportation Ray
LaHood said as much in a June 19 letter to Mayor Mark Mallory: “(A)bsent
the satisfactory deployment of the project, DOT will be required to
deobligate both the existing $10.9 million TIGER grant and the $25
million in Urban Circulator program funds. However, the $4 million in
CMAQ funding for the Cincinnati area would be available to the region to
reprogram in support of eligible projects.”

Cranley says he could still lobby DOT,
with the support of Republicans such as local Rep. Steve Chabot and Gov.
John Kasich, to redirect the grants to the interchange project for
Interstate 71 and Martin Luther King Drive. That could also save the
city the expense of putting its own funds toward the highway project.

“Right now, we have a divided approach to
Washington,” Cranley says. “We have all of our Congress people and
governor saying one thing, which is we want MLK and the Brent Spence
Bridge done and prioritized, and we got the mayor and vice mayor saying
we want the streetcar.”

But, as LaHood’s letter states, the
federal government would likely pull its funding if the streetcar
project isn’t completed. The grants are part of a highly competitive
process that pits transportation projects around the nation against each
other, so the federal government awarded the money after a lot of
vetting with the streetcar specifically in mind. Some of the awards are
also intended for public transit projects and light rail, not highway
systems.

Given the risks, Qualls says it would be
irresponsible to cancel the project and potentially anger the federal
government and other business partners, which could damage far more than
the streetcar and impact the city’s ability to lobby partners for other
projects.

On track

While the mayoral debate rages on,
construction for the streetcar project is well underway. John Deatrick,
executive director of the streetcar project, says tracks should arrive
starting in mid-October, and roughly half a mile of track should be laid
out between 12th and Henry streets by December, when a new mayor takes
office.

Deatrick says he’s also been in regular
discussions with CAF USA about building the actual streetcars. The big
milestone for him is testing the cars on the Over-the-Rhine loop once
the track is fully laid out in June 2015. That, he says, is when the
kinks should be worked out of the system and the project will take its
finishing steps — hopefully in time for its opening day on Sept. 15,
2016.

But Cranley says he’s concerned that
construction for the project is ongoing and claims it should be halted
for two months until the new mayor is sworn in.

“Stop the reckless spending,” he says.
“Eight weeks between now and the swearing in of the next mayor is not
going to change anything for their schedule, but it wastes money if I’m
elected.”

Streetcar supporters argue slowing down a
project every time it becomes politically controversial would freeze
the city’s abilities to take on big ideas.

In this case, a two-month delay could
prove hard to swallow for developers who have already put in supply
orders and worked on the project. Companies don’t typically make
multimillion-dollar buy-ins with months-long delays in mind.

Cranley counters that the streetcar
project is a “unique situation” that comes at a huge cost to voters. “Do
they really need to lay half a mile of track five weeks before an
election?” he asks. “They are doing this in a political manner.”

It wouldn’t be the first time the streetcar project was delayed because of politics.

The biggest obstacle came when Gov.
Kasich, shortly after he defeated former Gov. Ted Strickland in 2010,
pulled $52 million in state-allocated federal funds from the streetcar
project. That forced Cincinnati to reconsider the scope of the project
and, ultimately, eliminate a route to the uptown area, which includes
the University of Cincinnati and nearby hospitals.

More delays also came through two voter
referendums that voters eventually rejected to effectively back the
streetcar project. In 2009, voters dismissed a city charter amendment
proposed by the conservative Coalition Opposed to Additional Spending
and Taxes (COAST) and the local branch of the National Association for
the Advancement of Colored People (NAACP) that would have required a
local vote for every rail project involving Cincinnati. In 2011, voters
rebuffed another referendum led by COAST and the NAACP that would have
stopped any spending on rail projects until 2021.

Earlier in 2013, the project was stalled
again when construction bids came in $21.7 million higher than initial
city estimates. That forced the city to make some cuts and commit
another $17.4 million to the project, which caused more delays as the
city administration and City Council worked out the details.

Given the circumstances, Cranley says
that another delay wouldn’t mean much. But streetcar supporters, anxious
to get the project going after years of delays, say it’s time to get
the project on a clear track to completion.

Playing politics

Considering the streetcar project’s
progress, contractual obligations and voter support to this point, some
streetcar supporters have raised questions as to why Cranley, a Democrat
who is seen as progressive in most other policy areas, has staunchly
staked his campaign on stopping the project.

Cranley says canceling the project is
necessary because it has pulled funding from other essential capital
projects and forced the city to raise property taxes. He says a
streetcar should be low on the city’s priorities.

Qualls counters with research from
consulting firm HDR and the University of Cincinnati that found the
streetcar project would produce a three-to-one return on investment and
increase property values along the rail line. She says that makes the
project a vital vehicle for economic development.

On the political side, Gene Beaupre, a
political science professor at Xavier University, says the streetcar’s
established recognition makes it an easy policy for two Democrats to
differentiate themselves on. Beaupre says that’s true even if stopping
the current phase of the streetcar project is implausible.

“If it becomes clear that that’s not
possible, he can still use it to call into question the judgment of his
opponent in supporting it to begin with,” Beaupre says of Cranley’s
continued opposition.

According to Beaupre, the streetcar
project might matter a lot to some voters, but for the majority it
matters more how the candidates use discussion of the issue to show off
their leadership abilities and other characteristics that voters look
for in a mayor.

But even if the strategy proves
politically successful for Cranley and he’s elected to office, repealing
the project would take a majority vote from City Council. If the eight
incumbents running for council are re-elected, whoever takes Qualls’
seat could be the necessary swing vote to save or kill the project.